Younger Generations Have Higher Incomes Too (and it’s probably not explained by the rise of dual-income families)

By Jeremy Horpedahl.

"Regular readers know that I’ve written numerous times about the wealth levels of younger generations, such as this post from last month. Judged by average (and usually median too) wealth, younger generations are doing as well and often better than past generations. This is not too surprising, if you generally think that subsequent generations are better off than their parents, but many people today seem to think that progress has stopped. The data suggest it hasn’t stopped!

Now there’s a great new paper by Kevin Corinth and Jeff Larrimore which looks at not wealth but income levels by generation. The look at income in a variety of different ways, including both market income and post-tax/transfer income. But the result is pretty consistent: each generation has higher incomes (inflation adjusted) than the previous generation. Here’s a typical chart from the paper:

Just like the wealth data, this is good news! And unlike the wealth data, younger generations aren’t starting off with a “deficit” when they are very young, only to catch up mid-working years. They start out roughly even with past generations (depending on the income definition used), but then quickly pull ahead. Accumulating wealth takes a bit longer, and they also start out with more debt such as for student loans, but the lifetime effects of more student debt is much higher incomes. As the authors put it: “when considered over the entire lifespan, the increased cost of college represents a small share of the increase in lifetime income for Millennials relative to previous generations.”

In other words, college still pays off.

One other great thing about this paper is that we can answer the question of whether rising median incomes are driven by the growth of dual-income families. The authors look at total working hours for the household (covering both spouses). The finding is interesting, because it’s the reverse of what you often hear: for the Silent Generation and Baby Boomers, part of the increase in household income is from working more hours. But for the more recent generations (Gen X and Millennials), that’s not the case: younger households have roughly the same number of working hours as Boomers did during prime working years.

Again, here’s the authors on this point: “Holding work hours constant, we find that Generation X and Millennials experienced a larger intergenerational increase in market income than Baby Boomers.”

Lots more good news in the paper. Is there any downside we can point to? One trend is that young people are more likely to be dependent on their parents longer. But this actually gives them a big advantage once they become independent: “Millennials were able to achieve a higher financial standard of living than previous generations by sharing resources in their 20s (perhaps while continuing their education) and then continued to maintain this higher standard of living when setting off on their own in their 30s.”

The kids are doing all right!"